e, they are gradually thinning out their mainstream store fleets. Beneath all of the marketing spin, the carefully crafted press releases and the often-feigned optimism of CEOs as they expound on their latest turnaround strategies, department store market share continues to decline at quite an alarming rate. Many things are being tried and touted to stem the tide. In recent years, one strategic road that department store operators everywhere have liked to go is the concessions route – sometimes called ‘leased departments’ (USA) and ‘shop-in-shops’. Is this where the department store rot stops? Concessions are a way of reducing the amount of space within the department store box that is directly operated by the company. This serves a number of purposes simultaneously – ideally, it replaces dead or marginally productive selling space with tenancies that pay rent (up to 30 per cent of their sales in some cases). These tenancies not only supply a steady income stream to the department store for that particular space, but they may also drive more traffic, which can have positive spillovers for the rest of the store. Concessions also reduce a department store’s inventory risk. Although the concessions model is very popular in Europe and Asia, it has been slow to gain acceptance in the developed country with the most department stores – the USA. But the obvious overstoring problem in that country, both in terms of number and size of stores, has led in recent years to more interest in concessions. Even so, the first chart below shows that the influence of concessions remains fairly negligible in the US. Over the past 10 years, US Census Bureau data shows that the percentage of department store sales attributable to leased departments has risen from 2.7 per cent to 3.6 per cent. So the contribution of concessions to sales in the aggregate is quite modest. Not only that, but concessions sales have not always even risen in absolute terms. As the second chart shows, shop-in-shop sales plunged during the Great Recession years and have floundered again more recently, from 2015-17, although to be fair some of those declines are a result of a fall in the number of department stores themselves. Small part of the puzzle The overall positive impact of concessions on US department stores has accordingly been less than seismic. Department stores had a 6.9 per cent market share in 2007 and were down to 4.5 per cent in 2017. If you take away the impact of leased departments, market share would now be 4.3 per cent – still wallowing in pretty dismal territory and with no sign of getting better.   There are some caveats to this data, of course. It obscures the fact that there have been some notable successes. The partnership between Sephora and JCPenney has been so successful it is credited with making the department store a beauty destination. There are now about 650 Sephora concessions inside JCPenney department stores. The shop-in-shops are typically around 200 square metres, with a larger footprint of about 300 square metres in selected locations. The conundrum for JCPenney continues to be how to get the young Sephora shoppers to buy other stuff while they are in the store. If the department store isn’t a fashion destination – and JCPenney really isn’t despite its best efforts – then the spillover effects are minimal. In this respect, the presence of luxury brand shop-in-shops at high-end department stores such as Nordstrom, Saks and Bloomingdale’s has probably had a more positive impact on the department store generally. This is consistent with the experience in Western Europe, Hong Kong and to some extent Japan. Clearly, there is no single answer to department stores’ problems. There is a massive excess of department store space in developed countries, reflected in falling store productivities, declining market share, consolidations and bankruptcies. In the face of this calamity, anything that has the effect of reducing the amount of unproductive selling floorspace needs to be looked at. This includes outright store closures, using the store to fulfill online orders, and replacing store-operated selling space with concessions. Increasing the number of shop-in-shops could have a beneficial effect if the concessions make strategic sense. It is easier to execute if the store is freestanding but in the shopping centre context it may not sit well with landlords who balk at the idea of department stores getting into the sub-leasing business. Either way, concessions are only a small part of the puzzle and if the model isn’t thought through properly it can be counterproductive for both department stores and concessionnaires. Michael Baker is a Sydney-based retail consultant and former head of research at the International Council of Shopping Centers. michael@mbaker-retail.com